Using the work of an auditor’s expert

ISA 620
INTRODUCTION
• Sometimes auditors will need to use the work of others to obtain sufficient,
appropriate audit evidence.
• Experts in a field other than accounting or auditing
• ISA 620 gives a number of examples including:
• Specialist valuation areas such as
• Actuaries to evaluate the adequacy of pension scheme funds
• Estate agents to value property
• Legal opinions eg Lawyers to estimate a legal liability
• Gemologists to value diamonds
• Geologists to estimate mineral deposits
• Auditors have sole responsibility for their opinion even if evidence on
which it is based was produced by others
Expert defined
• ISA 620 Using the work of an auditor's expert distinguishes between
the 'auditor's expert' and 'management's expert'
• An expert is a person or firm possessing special skill, knowledge and
experience in a particular field other than accounting and auditing.
• An auditor’s expert is an individual or organization who has expertise
(i.e. possess skills, knowledge and experience) in a field other than
auditing or accounting, whose work in that field is used by the
auditor to assist the auditor in obtaining sufficient appropriate audit
evidence
Expert defined
• Management’s expert is an individual or organization having
expertise in a field other than auditing or accounting, whose work in
that field is used by the entity to assist the entity in preparing the
financial statements.
• Professional audit staff are highly trained and educated, but their
experience and training is limited to accountancy and audit matters.
Objective of ISA 620
• To allow the auditor to
• Decide whether to use the work of an expert
• Assess whether that work is adequate
Assessing the need for an expert
• There is a cost attached to the use of an expert by the auditors. The
expert will charge a fee for the professional service he provides.
• The use of an expert should therefore be evaluated on a cost/benefit
basis. There should be a real need for the expert’s services.
• In determining the need, the auditor should consider:
• The nature, significance and complexity of the matter
• The risk of material misstatement
• The availability (quantity and quality) of alternative sources of audit
evidence
Some Examples given by the standard

• Specialist valuation areas such as

• Actuaries to evaluate the adequacy of pension scheme funds
• Estate agents to value property
• Legal opinions eg Lawyers to estimate a legal liability
• Gemologists to value diamonds
• Geologists to estimate mineral deposits
• The measurement of work completed and work in
progress on contracts
• Determination of quantities or physical condition of assets
• Once it is decided that an auditor's expert is required, the approach
should be discussed with the management of the entity.

• Where the management is unwilling or unable to engage an expert,

the auditors should consider engaging an expert themselves unless
sufficient alternative audit evidence can be obtained.
Assessing the work of an expert
• Obtain an understanding
• of the expert’s field of expertise, sufficient to allow the auditor to determine the
nature, scope and objectives of the expert’s work and evaluate the adequacy of
the work

• Assess the Competence, capabilities and objectivity of the auditor’s expert

• In the case of an auditor's external expert, the evaluation of objectivity shall

include inquiry regarding interests and relationships that may create a threat to
that expert's objectivity
Assessing the work of an expert
• This will involve considering:
• The expert's professional certification, or licensing by, or
membership of, an appropriate professional body
• The expert's experience and reputation in the field in
which the auditors are seeking audit evidence
Assessing the work of an expert
• Other forms of assessment may include:
• Personal experience with previous work of that expert.
• Discussions with that expert.
• Discussions with other auditors or others who are familiar with
that expert’s work.
• Published papers or books written by that expert.
• The auditor’s firm’s quality control policies and procedures
Assessing the work of an expert
• The risk that an expert's objectivity is impaired increases when the
expert is:
• Employed by the entity
• Related in some other manner to the entity, for example, by being financially
dependent upon, or having an investment in, the entity
• If the auditors have reservations about the competence or objectivity
of the expert they may need to carry out other procedures, or obtain
evidence from another expert.
Assessing the work of an expert
• Agree to terms of the engagement
• ISA 620.11
• The auditor shall agree, in writing when appropriate, on … the nature, scope and
objectives of that expert's work.
• Written instructions usually cover the auditor's expert's terms of reference and
such instructions may cover such matters as follows:
Assessing the work of an expert
• The objectives and scope of the expert's work
• A general outline as to the specific matters the expert's report
is to cover
• The intended use of the expert's work
• The extent of the expert's access to appropriate records and
files

• Clarification of the expert's relationship with the entity, if any

• Confidentiality of the entity's information
Assessing the work of an expert
• Evaluate the adequacy of the expert’s work
• Auditors should assess whether the substance of the auditor's expert's findings is
properly reflected in the financial statements or supports the financial statement
assertions. It includes evaluating :
• The reasonableness of expert’s conclusion
• Consistency of those conclusions with other audit evidence
• Reasonableness of significant assumptions and methods used
• Relevance, competence and accuracy of source of data
Assessing the work of an expert
• If the auditor determines that the work of the auditor's expert is not adequate
for the auditor's purposes, the auditor shall:
(a) Agree on additional work with the expert, or
(b) Perform additional audit procedures appropriate to the circumstances.
 Reference to an auditor's expert in the audit
report
• The auditor has the sole responsibility for the audit opinion issued
and this is not reduced in any way by his use of expert.
• ISA 620.14
• The auditor shall not refer to the work of an auditor's expert in an
auditor's report containing an unmodified opinion unless required
by law or regulation to do so.
• Such a reference may be misunderstood and interpreted as a
modification of the audit opinion, or as a division of responsibility,
neither of which is appropriate.
 Reference to an auditor's expert in the audit
report
• If the auditors issue a modified audit report, then they may refer to
the work of the expert.
• In such cases, auditors may need to obtain permission in advance
from the expert. If such permission is not given, then the auditors
may have to seek legal advice.
• If permission is given, he must make it clear that such a reference
does not reduce his responsibility for the opinion in any way.
• The auditor therefore cannot simply accept any work performed by
experts. The work must be evaluated the same way as other audit
evidence is evaluated